As 2024 draws to a close, the stock market continues its upward trajectory despite recent bouts of volatility, CNBC reports.
However, questions linger about whether the dominance of technology stocks will persist or give way to broader market gains in 2025.
This year’s stock market rally has been driven largely by strong corporate profits, with technology companies leading the charge. The S&P 500 is expected to end 2024 with a 10.2% earnings increase, its fourth consecutive year of growth, according to LSEG. Tech giants like Nvidia, which saw its stock price soar by over 180%, exemplify the sector’s exceptional performance.
The technology sector’s success has been fueled by advancements in artificial intelligence, reminiscent of the internet boom of the late 1990s. Earnings in the tech sector surged by an estimated 20.1% in 2024, far outpacing the broader S&P 500. Companies like Nvidia, Broadcom, and Amazon have driven much of this growth, particularly those within the “Magnificent Seven,” a group of tech-heavy megacap stocks that collectively represent nearly $20 trillion in value.
Despite the robust performance of tech stocks, some investors hope for a rotation into other sectors of the market. Earnings for the remaining 493 companies in the S&P 500 are expected to grow by 14% in 2025, compared to just 4% this year. This has sparked optimism that investors may begin to favor undervalued sectors with improving fundamentals.
However, the allure of megacap tech stocks remains strong. Even with slower profit growth anticipated in 2025, companies like Nvidia, Amazon, and Broadcom are still projected to deliver earnings gains that would outshine most other firms. Nvidia, for example, is expected to achieve 50% earnings growth next year, while Amazon is forecasted at 20.5%.
Looking ahead to 2025, the market faces significant uncertainties. Although the US economy remains robust and corporate profits are still climbing, factors such as Federal Reserve policy and potential economic shifts under the incoming administration could impact earnings growth.
Persistent inflation and a slower-than-expected easing of interest rates by the Federal Reserve could weigh on economic expansion. Additionally, policy decisions, such as new tariffs or labor market pressures, may introduce further volatility.
